This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the bottom of any article.

Regulatory Oversight of Investment Advisors
Although the regulatory environment is in a state of flux, it is imperative that RIAs adhere to their compliance obligations. To ensure compliance, RIAs and IARs must fully understand what those obligations are.

According to regulators, the parties offered investors the chance to buy a home in the Phoenix area, renovate it and sell it for a profit via funds placed into self-directed IRAs. The state has ordered them to give investors a refund for the private placement.

“Investors should be on guard against efforts to steer them towards self-directed IRAs,” said William Galvin, secretary of the Commonwealth of Massachusetts' securities division, in a press release. “While they are legitimate, they can be used by unprincipled promoters to deceive investors as to the safety of the investment."

In September 2012, Gadles told the investors that he hadn’t raised the minimum amount of funds needed to buy and flip a home, $110,000. Earlier, he’d told them that they would earn 8% annually and could expect a projected three-year return of 13% to 17%.

However, they were told “the sooner we can get your money out of your IRA and 401(k), the sooner you can stop losing money.”

“Investors are often told that there is a custodian holding the investments, but they are not told of the limited role that such IRA custodians have in evaluating an investment, nor are they told of the often high fees associated with these accounts,” the secretary added.

“With the oncoming of the ‘Crowdfunding Era,’" he warned, "investors must be on guard against offerings which are unbalanced, one-sided, and replete with unbridled puffery.”